A complete meltdown, right?
More specifically, a four-month battle to
cling to the key technical support of the 200-week moving average (the
red line).
Once the support finally broke................................
the index crashed.Now take a look at the U.S. S&P 500 stock market (SPX):

SPX is soaring to new highs, not just climbing a wall of worry but leaping over it.
So
the engine of global growth--China--is exhibiting signs of serious
disorder, and the world's consumerist paradise--the U.S.-- is on a
euphoric high (Ibogaine in the water supply?)This divergence is worth pondering.
How can the two
economies that have powered a 28-year Bull Market in just about
everything (setting aside that spot of bother in 2008-09) be responding
so differently to the global economy and global financial system's woes?There's a rule of thumb that's also worth pondering.
While
the stock market attracts all the media attention--every news cast
reports the daily closing the the Dow Jones Industrial Average, the SPX
and the Nasdaq stock index--the bond market is larger and more
consequential. And larger still is the currency market--foreign exchange
(FX).As the chart below illustrates, a great many currencies around the world are in complete meltdown. This is not normal.
Nations
that over-borrow, over-spend and print too much of their currency to
generate an illusion of solvency eventually experience a currency crisis
as investors and traders lose faith in the currency as a store of
value, i.e. the faith that it will have the same (or more) purchasing
power in a month that it has today.Here's the key takeaway: a currency crisis is a symptom of a deeper disease--it is not the illness.
The
same is true of stock market declines like the Shanghai Index that
break long-term support levels: a crashing stock market is a symptom of a
deeper disease, it's not the illness.The fact that so many currencies are melting down at the same
time is telling us the global financial system is unraveling, and
unraveling fast. This is a symptom of a fatal disease.
Currencies
reflect all sorts of financial information; they're akin to taking an
economy's pulse: trade balances, debt levels, interest rates, central
bank policies, fiscal policies, and so on.The global financial system is inter-connected, but this is not a viable excuse for the meltdown.
The
general explanation floating around is that currency weakness is like
the flu: one currency gets it, and then it spreads to other weak
currencies.
This diagnosis is misleading. What's actually happening is the unprecedented global bubble of debt and assets of the past decade is popping,
and it's laying waste to the most indebted, over-leveraged and
mismanaged nations first, either via stock market declines or meltdowns
in currencies.These are symptoms. The disease is the "fixes" of the past
decade--extreme expansions of debt and asset valuations--are unraveling.
The
global financial system suffered a seizure in 2008-09, a non-linear
manifestation of a system completely out of whack: the $500 billion
subprime mortgage market almost took down the entire $200 trillion
global financial system.
That's the acme of a brittle, fragile system: a small input (subprime
mortgage defaults) yields an enormous output (global financial
meltdown).What nobody dares talk about is the "fixes" have made the global financial system even more vulnerable than it was in 2008.
The
global meltdown of currencies is evidence that the symptomatic
"solutions" to the brush with collapse in 2008-09--skyrocketing debt and
asset bubbles-- fixed nothing. All they did was inflate an even larger,
more vulnerable bubble.Currencies don't melt down randomly. This is only the first stage of a complete re-ordering of the global financial system, a re-ordering that will reprice all the assets currently bubbling at absurd levels to much lower valuations.

The illusion that the U.S. is immune to the unraveling of debt and asset valuations won't last.
When
the defaults start piling up, so will the losses, and when asset
bubbles pop, incomes and spending decline.
Although few seem to notice,
almost half the profits of the S&P 500 corporations are earned
overseas.
The belief that U.S. markets are somehow disconnected from global
markets and immune to the repricing of risk, debt, assets and currencies
is magical thinking.
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